Interim Results

RNS Number : 5379S

Argos Resources Ltd

13 September 2010

 

13 September 2010

Argos Resources Limited

("Argos" or "the Group")

2010 Interim Financial Results

Argos Resources Limited (AIM: ARG), the oil & gas exploration Group with assets in the North Falkland Basin, today announces its Interim Financial Results for the period ending 30 June 2010.

Highlights

·     Significant progress in developing its 100% interest in the PL001 Licence in the North Falkland Basin

·     Seismic data reprocessing completed with noticeable improvement in data quality achieved

·     Seven prospects identified through data reinterpretation (combined potential 747 million barrels unrisked recoverable oil in most likely case) and five other leads mapped

·     AIM listing successfully completed on 29 July raising £22 million (gross)

·     Adequately funded to complete planned 3D seismic programme and identify drilling locations to be ready for a drilling campaign commencing in late 2011/2012. 

Ian Thomson, Chairman of Argos, commented today:

"Argos has made significant progress during the year including the re-interpretation of existing seismic data, a successful AIM listing and associated fundraising.  The funds raised will be used to undertake a 3D seismic programme over the coming southern hemisphere summer which will further define the already high graded prospects and leads, and identify potential drilling locations ahead of a 2011/2012 drilling campaign."

For further information:

Argos Resources Ltd ([phone])

www.argosresources.com

Ian Thomson, Chairman

John Hogan, Managing Director

Drew Irvine, Finance Director

Evolution Securities Limited ([phone])

Robert Collins

Tim Redfern

Neil Elliot

Adam James

Citigate Dewe Rogerson ([phone])

Martin Jackson

George Cazenove

Kate Lehane

John Hogan, BSc (Hons) Geology, the Company's Managing Director, is a qualified geologist with over 35 years in the oil industry. He has reviewed and approved the technical information contained in this announcement pursuant to the AIM guidance note for mining and oil and gas companies.

Notes to Editors

Argos is an oil and gas exploration Group based in the Falkland Islands. The principal asset of the Group is a 100 per cent. interest in Production Licence PL001, covering approximately 1,126km² in the North Falkland Basin (the "Licence"). Based on the reprocessing and reinterpretation of the 2D seismic data acquired in 1996, seven prospects and five leads have been identified by Argos in the Licence. The combined potential of the seven prospects is estimated to be 747 million barrels of unrisked recoverable oil, in the most likely case, and up to 1.75 billion barrels in the upside case. The Licence adjoins licence areas being explored by Rockhopper Exploration plc and Desire Petroleum plc, who have drilled the first three wells of a new eight well drilling campaign in the North Falkland Basin.

The Company has a strong and experienced management team with significant experience in both the oil and gas industry and the Falkland Islands. The Company's strategy is to undertake a 3D seismic programme during the next austral summer over a number of the prospects and leads identified from the interpretation of 2D seismic data, with a view to better defining those prospects and leads, and potentially identifying new prospects, leading to the selection of possible targets for an initial drilling programme commencing in late 2011/2012.

Successful AIM admission on 29 July 2010 marked the completion of Argos' successful Placing.  The Placing Price was set at 31 pence per Placing Share.  The gross proceeds of the Placing are approximately £22.0 million.  Argos will use the net proceeds of the Placing, being £20.6 million, principally to finance its planned 3D seismic acquisition and interpretation programme. The general and administrative costs are funded through 2011.

Chairman's statement

In the first six months of 2010 the Group has made significant progress in developing its 100% interest in the PL001 Licence (the "Licence") in the North Falkland Basin.  The Licence covers a large area in the centre and western part of the north of the Basin, adjacent to Rockhopper's PL032 Licence containing the Sea Lion Discovery.

The successful listing on AIM on 29 July followed an intensive programme of technical and commercial work.  This included a review of the existing seismic data, verification of existing prospects, identification of new prospects and leads and the preparatory work required for a comprehensive 3D seismic programme.  Seismic interpretation is expected to be completed in the second half of 2011.

The Group is now adequately funded to complete the 3D seismic programme and identify drilling locations to be ready for a drilling campaign commencing in late 2011/2012.  The drilling campaign will require further financing through either equity fundraising or from a farm-in partner.

The Group will continue with its long term strategy, as it has done since 1996, of developing its resources and assets to become the leading Falkland Islands based E & P Group.

Operating review and outlook

Operating review

The Group's focus has been on identifying deeper prospects in the North Falkland Basin than were tested in the 1998 drilling campaign, believing that the deeper potential of the basin had been overlooked in an area where a mature world-class oil source rock is now known to exist.  Therefore, in 2009 the Group decided to reprocess the seismic data in its Licence in order to try to improve data quality in the deeper parts of the basin in its licence area, and thereby identify attractive drilling prospects for oil.

This reprocessing project, including all the 2D seismic data in the Licence as well as a halo of 2D seismic around the Licence, was completed early in 2010.  A noticeable improvement in data quality was achieved from this reprocessing.  A reinterpretation of this new data has identified seven prospects in the Licence with a combined potential of 747 million barrels of unrisked recoverable oil in the most likely case, and up to 1.75 billion barrels of oil in the upside case.  In addition, five other leads have been mapped, which could offer considerable additional oil potential, but which require more seismic data to delineate.

Outlook

The work done from the interpretation of the 2D seismic reprocessing has highgraded prospects that are now the subject of further evaluation.

The funds raised at the time of listing the Company on AIM will be used to undertake a 3D seismic programme which will further define the highgraded prospects and leads, and identify potential drilling locations.

Financial overview

Losses for the Group for the 6 months to 30 June 2010 were $248K (2009 $78K) giving a loss per share of 0.43 cents (2009 0.15 cents).

Administrative expenses increased from $78K to $248K due mostly to increases in payroll costs, as a result of the introduction of a share option scheme in November 2009, and an increase in professional fees associated with the AIM IPO.

Net assets at the period end fell from $4,200K to $4,073K due to the losses incurred.

Financial outlook

The company received £20.6 million net of expenses on 2 August 2010, following a successful placing of 70,967,742 of new ordinary shares at a placing price of £0.31.

Risk and principal uncertainty

The funding and forward plan has changed the risk profile of the Group operations.  The risks and the related mitigation measures are discussed in more detail in note 7.

                Ian M Thomson                 Chairman            10 September 2010

Condensed consolidated statement of comprehensive income

Period ended 30 June 2010

	Note	6 months ended 30 June 2010 unaudited US$	6 months ended 30 June 2009 unaudited US$	Year ended 31 December 2009 audited US$
Administrative expenses		(247,546)	(77,567)	(174,673)
Loss from operations attributable to owners of the parent		(247,546)	(77,567)	(174,673)
Total comprehensive income for the period attributable to owners of the parent		(247,546)	(77,567)	(174,673)
Basic and diluted loss per share (cents)	3	(0.43)	(0.15)	(0.32)

Condensed consolidated statement of financial position

As at 30 June 2010

	Note	As at 30 June 2010 unaudited US$	As at 30 June 2009 unaudited US$	As at 31 December 2009 audited US$
Assets
Non-current assets
Capitalised exploration expenditure		4,010,642	3,677,692	3,754,045
Current assets
Other receivables	4	281,288	273,462	56,174
Cash and cash equivalents		242,603	98,957	446,830
Total current assets		523,891	372,419	503,004
Total assets		4,534,533	4,050,111	4,257,049
Liabilities
Total and current liabilities
Other payables	5	461,589	47,160	56,949
Total net assets		4,072,944	4,002,951	4,200,100
Capital and reserves attributable to
equity holders of the company
Share capital		4,343,042	4,081,225	4,343,042
Accumulated deficit		(270,098)	(78,274)	(142,942)
Total shareholders' equity		4,072,944	4,002,951	4,200,100

Condensed consolidated statement of cash flows

Period ended 30 June 2010

	6 months ended 30 June 2010 unaudited US$	6 months ended 30 June 2009 unaudited US$	Year ended 31 December 2009 audited US$
Cash flows from operating activities
Loss for period	(247,546)	(77,567)	(174,673)
Adjustments for:
Share based payment expense	110,664	-	32,438
Net cash outflow from operating activities
before changes in working capital	(136,882)	(77,567)	(142,235)
(Increase)/ decrease in other receivables	(255,751)	-	5,142
Increase/ (decrease) in other payable	336,129	(79,676)	(59,968)
Net cash inflow/(outflow) from operating activities	(56,504)	(157,243)	(197,061)
Investing activities
Exploration and development expenditure	(152,948)	-	(120,963)
Net cash used in investment activities	(152,948)	-	(120,963)
Financing activities
Issue of ordinary shares (net of issue costs)	-	229,651	737,450
Net cash from financing activities	-	229,651	737,450
Net (decrease)/increase in cash and cash equivalents	(209,452)	72,408	419,426
Cash and cash equivalents at beginning of period	446,830	27,216	27,216
Exchange gains/(losses) on cash and cash equivalents	5,225	(667)	188
Cash and cash equivalents at end of period	242,603	98,957	446,830

Condensed consolidated statement of changes in equity - unaudited

Period ended 30 June 2010

	Share capital US$	Retained earnings/ deficit US$	Total equity US$
At 1 Jan 2009	3,931,615	(707)	3,930,908
Total comprehensive income for
period to 30 June 2009	-	(77,567)	(77,567)
Shares issued (net of issues costs)	149,610	-	149,610
At 30 June 2009	4,081,225	(78,274)	4,002,951
Total comprehensive income for
period to 31 December 2009	-	(97,106)	(97,106)
Shares issued (net of issue costs)	261,817	-	261,817
Share based payment expense	-	32,438	32,438
At 31 December 2009	4,343,042	(142,942)	4,200,100
Total comprehensive income for
period to 30 June 2010	-	(247,546)	(247,546)
Share based payment expense	-	120,390	120,390
At 30 June 2010	4,343,042	(270,098)	4,072,944

Notes to the interim report - unaudited

Period ended 30 June 2010

1      Accounting Policies

General information

Argos Resources Limited is a limited liability company incorporated and domiciled in the Falkland Islands under registration number 10605.  The address of its registered office is John Street Chambers, Stanley, Falkland Islands.

The financial information for the six months ended 30 June 2010 and 30 June 2009 consists of condensed financial statements and does not constitute the Group's statutory financial statements for those periods.  

This condensed consolidated interim report was approved for issue by the Directors on 10 September 2010.

Basis of preparation

The financial information included within this interim report is reviewed but unaudited and is based on the consolidated financial statements of Argos Resources Limited and its subsidiary Argos Exploration Limited ("the Group").  They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2009 Annual Report.

The comparative financial information for the year ended 31 December 2009 has been derived from the full statutory financial statements for that period which were prepared under UKGAAP.  The Independent Auditors' Report on the Annual Report and Financial Statements for 2009 was unqualified and did not draw attention to any matters by way of emphasis.

Changes in accounting policy

When the 2010 annual financial statements are prepared they will be the first full year financial statements prepared in accordance with IFRS as adopted by the European Union ("Adopted IFRS") and as such, this interim report is also required to be prepared on this basis.  The financial information contained within the interim report has been computed on a basis which is consistent with that which will be applied in the preparation of the 2010 annual financial statements.  While the financial figures included in this interim report have been computed in accordance with adopted IFRS this interim report is not required to be prepared in accordance with IAS 34: Interim financial reporting. 

The change from UK GAAP to IFRS as a basis for preparation resulted in presentational differences arising from the differing requirements of IFRS.  The Group made no transitional elections and there were no material adjustments which require a reconciliation of equity, comprehensive income or cash flows as previously reported under UK GAAP.

The change to the functional and presentational currency in the relevant group companies is concurrent and effective from 30 June 2010 and the financial information for the year ended 31 December 2009 has been re-presented in USD.  This is the first interim report prepared by the Group and the comparatives are also stated in USD.

 

In accordance with IAS all items have been translated using the rate of exchange on 30 June 2010.  The rate used was £1=$1.4961.

 

The IASB has issued various new and revised standards, amendments and interpretations to existing standards that are not effective for the financial year ending 31 December 2010 and have not been adopted early as the Directors do not expect these standards and interpretations to have material impact on the financial statements.

Significant accounting judgements, estimates and assumptions

The Group makes certain estimates and assumptions regarding the future in relation to intangible assets and impairment of these assets.  Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  In the future, actual experience may differ from these estimates and assumptions.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed as follows:

 

Exploration and evaluation expenditure

As permitted under IFRS6 the Group has accounted for evaluation and exploration expenditure using the "full cost" method whereby all costs associated with oil exploration are capitalised as intangible assets, pending determination of feasibility of the project.

Impairment of Intangible assets

If there are circumstances which suggest that the carrying value of intangible assets may be impaired, the Group is required to test whether the intangible assets have suffered any impairment.  The valuation of intangible assets requires judgements to be made in respect of discount rates, growth rates and future cash flows and the cost of capital.  Actual outcomes may vary.

Share based payments

The Group is required to make estimates and judgements to determine the fair value of share options granted.

2       Segmental reporting

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (the "CODM").  The chief operating decision maker has been identified as the Board of Directors.  The CODM in accordance with IFRS 8 has considered the Group's activities and is of the opinion that the Group has only one operating segment which is that of oil and gas exploration in the waters around the Falkland Islands.

3       Loss per share	6 months ended 30 June 2010 unaudited US$	6 months ended 30 June 2009 unaudited US$	Year ended 31 December 2009 audited US$
Loss for the period	(247,546)	(77,567)	(174,673)
Weighted average number of ordinary
shares in issue during the period	58,058,180	52,569,230	54,685,777
Basic and diluted loss per ordinary share (cents)	(0.43)	(0.15)	(0.32)

As the Group is reporting a loss for all periods within the interim report in accordance with IAS 33 the share options are not considered dilutive as an exercise of the share options would result in a reduced loss per share.

4       Other receivables

Other receivables at the 30 June 2010 include $255,751 of share issue costs, in relation to the share placement and AIM listing which took place after the period end.  The amount will be offset against the share premium account in the 2010 annual accounts in accordance with IAS 32, following receipt of the proceeds.  All balances fall due for payment within 12 months.

5       Other payables

Professional fees of $255,751 have been accrued and included in other payables at the 30 June 2010 in relation to the share placement and AIM listing which took place after the period end.  All balances are payable within 12 months.

6       Events after the reporting date

On 9 July 2010 the Company's share capital of 5p ordinary shares was sub-divided into 1p ordinary shares and then immediately consolidated into 2p ordinary shares.  The Company's authorised share capital was then increased to £10 million by the creation of an additional 250 million ordinary shares of 2p each.

On 29 July 2010 the Company commenced trading on AIM, having raised £22.0 million (£20.6 million net of issue costs) by way of a placing of 70,967,742 of new ordinary shares in the capital of the Company at a placing price of 31 pence.  The funding will be used to carry out a 3D seismic programme during the 2010/11 austral summer.

7       Principal risks and uncertainties

The principal risks and uncertainties that could impact the Group's performance and the steps being taken to mitigate these include but are not limited to:

Exploration risk:           The search for oil is a high risk enterprise, particularly within a frontier province.  There is a risk therefore that no oil is found or that oil is not found in sufficient quantity to warrant commercial exploitation.  It is not possible to eliminate this risk but by carrying out further investigative work such as 3D seismic it is possible to reduce the risk prior to drilling.

Exchange risks:             The funding proceeds were raised in Sterling but the majority of the expenditure for the seismic programme will be in USD.  A strengthening of USD against Sterling would increase the cost of the programme.  The risk was mitigated by converting the estimated USD element of the costs to USD when the placement proceeds were received.

Liquidity risk:                This is the risk that the Group cannot meet its liabilities as these fall due.  As the timing of significant payments carries a degree of uncertainty, the proceeds of the issue are being kept in interest bearing term deposits with periods of no longer than 3 months.  This will reduce the income from interest deposits but with historically low interest rates, the impact is likely to be relatively low.

Counter-party risk:     This is the risk that a third party failure results in loss to the Group such as a bank collapse resulting in the loss of deposits.  To mitigate against this risk cash deposits are being spread between three high quality institutions, Lloyds TSB, Standard Charted Bank and HSBC.

Independent review report to Argos Resource Limited

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises of the condensed consolidated statement of comprehensive income, consolidated condensed statement of financial position, consolidated condensed statement of cash flow, consolidated condensed statement of changes in equity and notes to the interim report.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors.  The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

BDO LLP

Chartered Accountants and Registered Auditors

Reading

United Kingdom

Date        10 September 2010

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

 

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